The deliberately and slowly ever-appreciating Chinese yuan will become fully convertible some day and will rival the yen as a reserve currency. Having recently surpassed Japan by GDP size, China now is the world's second largest economy so it is only normal for the yuan to gain international prominence. But it is the Chinese themselves that have the most at stake in the forex reserve diversification conundrum as they hold $3.18 trillion in forex assets, approximately two-thirds of them dollar-denominated.
A Euro Breakup is (Ultimately) Gold Bullish
The worst-case scenario -- which is not what I am looking for -- is a disorderly euro breakup that could result in a sharp, but temporary, dollar spike as it did in 2008. Since the response to the 2008 crisis was more money-printing, the exchange value of the dollar is unlikely to remain high against sounder currencies with higher real interest rates or hard assets like gold. This suggests that any corrections from present levels are likely to be short lived and will ultimately lead to new highs for the price of gold bullion, likely in most major currencies.
If you are looking for exposure to gold bullion do not buy only gold stocks. Such stocks are stakes in operating companies that are very different from hard assets -- physical bullion is a hedge while mining stocks are leveraged investments.
Furthermore, there are a lot of conspiracy theories about the $72 billion worth of gold held in the SPDR Gold Trust (GLD). Paper claims on gold bullion via swaps, futures and the like are not the same as audited gold bars. While proving conspiracy theories is beyond the scope of this missive, the recent shrinkage to a 2.5% premium of net asset value for the Sprott Physical Gold Trust (PHYS) make the shares of the trust so much more attractive.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV